|
|
| Article 1 (Adjustable Rate Verses Fixed Rate Mortgages)
Article 2 (Reverse Exchanges: "Purchase Replacement Properties First") Article 3 (The Truth About Condo Living) Article 4 (Lead Paint Hazards & Regulations) Article 5 (Q&A with Michael Merrill) Article 6 (Multi-family Homeowners: Should You Convert Your Home to Condominiums?) Article 7 (How Energy Efficient is Your Fireplace?) |
|
Adjustable Rate Verses Fixed Rate Mortgages By Eric S. Erickson, President of Viking Mortgage Company. He has been helping homeowners and real estate investors close their mortgage transactions for the past 8 years. He can be reached at 1-888-738-3350 Interest rates! What is the interest rate going to be next week? Where are the interest rates going next month? I heard Greenspan is going to raise the discount rate next month. Am I ever going to get a 6% mortgage rate? On and on, we chatter without any good answers to these questions. What does the future hold for mortgage interest rates? My answer is why worry; there is nothing you can do about it. You want to buy a home and, like the rest of us, you?re not independently wealthy or didn?t take your dot.com company public – so you need to get a mortgage. You don?t want to wait to buy your new home until ?the market? brings about lower fixed interest rates. So what ARE your options? There are always new loan programs created to allow you to buy the home of your dreams. Right now, adjustable rate mortgage loan programs may be the answer to achieving your dream of homeownership. What are the differences between an adjustable rate mortgage (ARM) and a fixed rate mortgage? Simply put, a fixed mortgage?s interest rate will not change during the term of the loan and the adjustable rate will probably change. Generally speaking, there is a common belief that with an adjustable rate loan there is a large risk of changing future interest rates that will burden the borrower with ever increasing monthly mortgage payments. However, there are many different ARM loan products and I guarantee that there is one to fit your needs. Let?s examine how an ARM works and then review some of the popular ARM products that are available. First of all, the majority of the ARM loan products operate by the same principals. The terms you need to become familiar with are initial rate, index, margin, adjustment caps, lifetime cap and fully indexed rate. There is the initial rate and time period during which the loan is fixed. This rate tends to be below the current market fixed rates. During this period an ARM is the same as a fixed rate mortgage. The adjustable component of an ARM begins once the fixed period of time has ended. The interest rate during the adjustable portion of the loan is based on an index and a margin. An index is an independent, published economic indicator such as the 1-Year Treasury bill index. A margin is a fixed percentage that a Lender adds to the index to establish the actual interest rate charged. The index plus the margin is equal to the fully indexed rate. There are ?caps? established at the beginning of the loan. There is an adjustment period cap that is the maximum percentage the interest rate can change at each adjustment. There is also a ?lifetime cap? which is the maximum interest rate the loan can reach, even if the market rates have moved much higher. Let?s examine two popular ARM products that are available: the ?intermediate? ARM and deferred interest ARM. The intermediate ARM fixes the interest rate for a period of 3, 5, 7 or 10 years. After the initial fixed period the loan will adjust every 6 months, one-year or will be fixed again for the same period of time. What is great about these types of ARMs is that studies have shown that most people keep a fixed rate mortgage between 3 to 7 years. So an intermediate ARM gives you the benefit of a fixed rate mortgage for a reasonable period of time but the initial interest rate is lower than a 30-year fixed rate mortgage. Deferred interest ARMs fix the payment instead of the interest rate. A low initial interest rate of 3% to 5% is used to calculate the monthly payment. The real rate of interest is calculated using a very stable and low rate index. Examples are the cost of funds, moving 12-month treasury, or cost of savings. A fixed margin is added to one of these indices to determine the fully indexed rate. At the borrower?s option, the difference between the low initial rate and the fully indexed rate is added to the loan principal each month. Each year, the payment is increased by a fixed percentage for the next year. As the loan matures there will be a point where the monthly payment will equal the fully indexed rate payment. This loan is popular because the low monthly payments are attractive and the fully indexed rate tends to be lower than 30 year fixed rates. |
|
|
REVERSE EXCHANGES: "PURCHASE REPLACEMENT PROPERTIES FIRST" By Robert HB Buckner, New England Division Manager for Asset Preservation, Inc., a subsidiary of Stewart Title Company. Questions regarding exchanges can be directed to him toll-free at 877-845-1031. The need for a 1031 "reverse exchange" arises when circumstances require the replacement property to be acquired before closing on the relinquished (sale) property. This situation creates one question we hear daily from our clients. Can we perform a reverse exchange? The answer might very well be yes. The Opportunity: This exchange variation allows investors to immediately purchase an ideal replacement property. Certain reverse structures may also provide additional time to accomplish the actual exchange beyond the typical 180-day time frame. The Challenge: Although many tax and legal advisors are comfortable with the reverse exchange format, there are no specific Regulations which address this variation. There are some court cases which serve as guidelines, but nothing as solid as IRS issued Regulations. One way to avoid the reverse exchange is to delay closing on the new replacement property in some manner. These include:
In instances where closing cannot be delayed, the most predominant reverse exchange structure of "parking the replacement property" is used. This method avoids the pure reverse exchange of owning both properties at the same time, which is never advisable. In the "parking" method, the Exchanger (party performing the exchange) loans the purchase money to the QI to purchase the replacement property and take title, usually in the form of an LLC. The QI leases the property back to the exchanger through a NNN lease. Later, when the relinquished property is closed, the QI performs a typical exchange. The proceeds from the relinquished (sale) property are used to pay back the loan from the Exchanger, which was used to originally acquire the replacement property. Most tax and legal advisors consider the reverse format, outlined above, not affected by the 45 /180 day deadline. Therefore, the Exchanger receives the best of both worlds: an excellent acquisition today, and no time limits to sell the relinquished property. In addition, if the Exchange has multiple properties on the market and is not sure which one will sell first, there is greater flexibility in choosing the exchange property. Qualified Intermediaries (QI?s) have varying degrees of experience with reverse exchanges and many do not facilitate them at all. Those QI?s, that offer reverse services, typically do so only after certain prerequisites have been satisfied. These include being listed as a co-insured on the fire and liability insurance policies, along with concrete verification that the property is free of toxic waste and/or environmental hazards. A structure that sets up a separate LLC to hold title for each Exchanger?s transaction also provides increased security. Anyone desiring to perform a reverse exchange should use the services of professionals with reverse transaction experience. This will minimize the risk of having the exchange invalidated, or worse, jeopardizing the asset. All investors should seek independent tax and/or legal counsel regarding any proposed reverse exchange. |
|
|
|
The Truth About Condo Living By Jay McHugh of RE/Max Affiliates People buy condominiums for a myriad of reasons. These attached dwelling units are more affordable than single-family homes and, consequently, are attractive alternatives for first-time or low-income buyers. Sharing maintenance and repair responsibilities appeals to people who have limited time or aren't interested in such chores. Many condo complexes have swimming pools, recreation rooms, tennis courts or other amenities, and many condominiums are located in highly desirable resorts, golf course communities or vacation hot spots. Of course, there are pluses and minuses to community living. If you're thinking about buying a condominium as a full-time residence, here are some questions to consider: Are you a good neighbor? Like apartment tenants, condominium residents share walls, floors/ceilings, hallways, entrances and parking areas with their neighbors. Respect for other people's right to the quiet enjoyment of their homes is part of the arrangement. Your neighbors will appreciate (and hopefully reciprocate) your efforts to turn down the volume, walk softly, close your doors quietly and limit your vacuuming to reasonable hours. If you're a noisy neighbor, you won't be welcome. Are you willing to follow the community's rules? Condominium owners are bound by the association's covenants, conditions and restrictions (CC&Rs). These thick legal documents cover everything from special assessments and the election of the association's officers to the allocation of parking spaces and the use of recreational facilities. Owners who fail to follow the rules can be fined, and most associations have the power to attach a lien to an owner's property if the fines or assessments aren't paid. If you're willing to follow the rules and regulations, you might be happy living in a condominium setting. Are you comfortable with joint financial responsibility? Single-family homeowners needn't consult their neighbors about financial decisions with respect to their own property. Condominium owners, on the other hand, must come to an agreement (by consensus or voting) on a variety of maintenance and repair matters. Should an older roof, unreliable security gate or ancient water heater be replaced this year or next year? Should a special assessment be collected for an emergency repair or extra service? How much money should be spent on landscaping? How often should the garbage be collected? If you relish the opportunity to make responsible decisions along with others, condo living could be a good choice for you. Are you prepared to volunteer your time for association business? True, some condominium owners never volunteer. However, your lack of participation will be noticed by your neighbors, particularly in a smaller building. Being part of the community means you should take your turn at serving on the board of directors, joining a special committee, getting estimates for repairs or taking responsibility for other tasks that benefit the group as a whole. If you're willing to pitch in, you'll earn the gratitude and respect of your fellow owners! |
|
|
Lead Paint Hazards & Regulations By John MacIsaac President, ASAP Lead Paint Inspections, Inc. John MacIsaac is a certified Lead Inspector and a lifelong resident of Boston. His firm, ASAP Lead Paint Inspections, Inc., has performed more than 7,000 inspections in Massachusetts and has 16 years of experience. Call ASAP at 1-800-349-7779 or visit ASAP on the Web at www.asapleadpaint.com Thanks to new state regulations, property owners have more options than ever before for removing a lead paint hazard from their homes. The regulations, slated to take effect in February, make it safe and more cost effective for home owners to eliminate a lead paint hazard by performing some of the work themselves. In fact, you may be able to save valuable time and money, and in many cases eliminate the need to hire a professional deleading firm! If you're thinking of purchasing or own a home built before 1978, lead paint could be a problem. Today's interior and exterior paints are no longer manufactured with lead, but in older homes, deteriorating lead paint poses a significant health risk to children under the age of six. Kids can ingest or inhale paint dust or peelings, leading to lead paint poisoning. Before the new regulations, compliance with the state's Lead Law required that the removal of woodwork or windows containing lead paint be performed exclusively by a licensed deleading firm. Home owners were authorized to perform certain "low risk" lead abatement activities, but not to remove windows or woodwork. The new regulations create a new category of "moderate-risk" deleading methods, which trained home owners and renovators will be able to perform. Moderate risk includes the removal of windows and woodwork found to have a lead paint hazard, as well as making intact, or repairing limited areas of deteriorated lead paint. Removal of windows and woodwork includes casings, sashes, and frames on the inside as well as siding and clapboards on the outside of your home. The new regulations also allow home owners to repair up to 2 square feet of deteriorating lead-based paint per room, hallway or other interior area, and up to ten square feet on the exterior. Significant Savings Windows are often the costliest portion of lead paint abatement jobs, so the new regulations are expected to reduce costs for many property owners who want to do the work themselves. State health officials estimate as many as 80% of properties with a lead paint hazard can be brought into compliance with the state?s Lead Law using just low- and moderate-risk abatement measures. "Low-risk" measures for eliminating a lead paint hazard include the installation of protective coverings like paneling, durable carpeting and liquid encapsulants. The new regulations make it easier for home owners to use encapsulants, and the regulations simplify the determination of which areas are eligible for encapsulation. Start With An Inspection If you think you may have lead paint problem, first have your home or property inspected by a licensed lead inspector. The inspector can tell you if a lead paint hazard exists and which areas are eligible for low-risk or moderate-risk abatement measures. To take advantage of the new, cost-saving regulations, home owners and renovators who want to perform moderate-risk deleading must first enroll in a day-long course. The course is designed to teach them how to protect themselves and occupants from the dangers of lead dust, and to ensure they know how to clean up properly after each job. State officials are in the process of certifying the course providers who will be allowed to charge a fee to enrollees. To find out more about available training in your area, call the Childhood Lead Poisoning Prevention Program at (800) 532-9571. |
|
|
Q&A with Michael Merrill of Merrill & McGeary, a real estate attorney.
Q: I am purchasing a Condominium unit and selling my house. I have two questions. The Condominium I am moving into only allows one pet per unit. I happen to have two indoor cats. These cats are very small and will not bother anyone. Do you think this is a problem? Should I just ignore the rule and move into the unit with the cats or should I ask the management for permission to have an additional pet? My second question is: I rent and apartment in my house to a student. In order to sell my house I have to deliver the house vacant. How do I handle the situation with my renter? R.I. A: If you intend to become a Condominium owner, you should understand from the beginning that you must follow the terms of the Condominium Documents and the rules and regulations. If you are not willing to live in accordance with the rules, then I suggest you not purchase in this condominium or, for that matter, in any other condominium. If a unit owner fails to abide by the rules and regulations, the Condominium Trustees have the right to impose fines on the unit owner as well as recover the Trust?s costs and expenses of enforcement. My advice is to not ignore the rules and regulations, but ask the Trustees for permission to have an additional pet. If permission is given, make sure you get the permission in writing. With regard to your renter, I recommend you speak to him/her and explain the situation. I assume you have a tenancy-at-will and can therefore terminate with a thirty day notice. After you speak with your renter, follow up the verbal notification with a written termination of the tenancy. The notice should be delivered in hand before the first of the month to be effective the end of next month. This can be a complicated matter and I recommend you consult a real estate attorney with landlord/tenant experience. Michael W. Merrill Q: My brother and I recently inherited a house with an adjoining lot of land. We do not live in the area and intend to sell the house and lot as soon as possible. The lot is buildable, but there is a problem because the driveway for the house encroaches onto the vacant lot. This makes it impossible to sell the two lots to separate owners without zoning relief. Should we undertake to solve the driveway problem at our cost prior to selling the house and lot or should we sell the properties together ?as is? and let the Buyer deal with the issue? M.O. A: Without more information, this is a complicated question to answer. What you really need is marketing advice from your real estate broker. For example, you should analyze the value of the house and lot with a zoning problem as opposed to separate parcels without a zoning problem. In this Seller?s real estate market, it may be that a Buyer is willing to pay the price you want and to take the risk. There are only a few good properties available. On the other hand, a Buyer may not want to deal with the zoning problem because the cost of the project is unknown and the relief is not guaranteed. As a result, a Buyer may offer a substantially lower purchase price which is unacceptable to you. My advice is to put the house and lot on the market, explain the situation to potential purchasers and see what offers you get. If there are no offers or only very low offers after three or four weeks, then I recommend you resolve the zoning issue yourself and maximize the marketability and value of the property. Michael W. Merrill |
|
|
Multi-family Homeowners: Should You Convert Your Home to Condominiums? By Sara Rosenfeld, Sr. Vice President, Co-Manager of Hunneman & Coldwell Banker Many Metro Boston multi-family homeowners are facing a decision about their home, whether they are living in the house or renting the entire property. Most communities will allow multi-family homeowners to convert their house into condominiums, which gives them the ability to sell each apartment separately. A condominium conversion is creating a different form of ownership. Is a condominium conversion the right move for you? In order to answer that question, the homeowner needs information and assistance from a qualified real estate professional. The real estate professional must understand the marketplace, the process for condominium conversion, and provide the homeowner with a thorough market analysis and pricing opinion of their multi-family home and the property as condominiums. Most importantly, the homeowner must have a realistic plan for the conversion and the costs involved. In order to create a legal condominium unit, all the apartments must be legal. The city or town?s building department must recognize each apartment as a separate habitable unit. The question of a legal unit comes up most frequently with homes that were originally built as a single family and then turned into a multi-family house. Another type of apartment that may be in question is the one in the basement or attic. The homeowner needs to determine whether all the apartments are legal units before starting the conversion process. What are the costs involved with a condo conversion of a multi-family house? The total costs can vary based on the size of the house and number of total units. The expenses include attorney?s fees for the creation of condominium documents to change the ownership and create the condominium according to Massachusetts? State Law 183A. The owner will also need to hire a licensed architect to create the floor plans of each of the units and the common areas (basement, hallways, etc.). A surveyor may be needed for a site plan if a parking plan is needed and for the division of any yard space. A hidden cost many homeowners may not consider is the need to refinance the multi-family house in preparation for a possible partial sale of the property. For example, if you own a three-family house and have a $400,000 mortgage on the property and each of the units is worth between $280,000 and $320,000, what happens if only one unit sells right away and the other two units sell at a later date? If unit #2 sells for $300,000, there are not enough proceeds from the sale to fully pay off the existing mortgage. Most mortgages are not written to allow for a partial payoff. Additionally, the original loan was written for a three-family house and at the time of the closing the property will be three condominiums! To avoid a problem like this one, the homeowner may decide to refinance the property with a local lender who can accommodate a mortgage, which will allow for a partial payoff and the change of the form of ownership. The refinance needs to occur prior to the sale of the first unit. The cost to refinance the property is another cost added to total cost of the conversion. A careful analysis needs to be done of all the entire property to determine what type of work needs to be completed for the condominium to get the best price when sold. Many homeowners spend thousands of dollars on renovations in order to get the best price for their condominium unit. When you add in all of the costs listed here along with the expenses all homeowners face when selling their property, there may not be a financial advantage to convert the property to condominiums. There are many other items that need to be taken into consideration. Some of the items include creating a budget for common expenses and determining monthly condo fees, creating a careful marketing plan to determine how long it will take to sell each of the units, and most importantly, the total costs to carry the property while it remains vacant. As you can see, a homeowner needs experienced real estate professionals to guide them each step along the way! Many sales agents specialize in helping homeowners with this decision. |
|
|
HOW ENERGY EFFICIENT IS YOUR FIREPLACE? By Shari Marquis, President of the Residential Association of Realtors. A fireplace may take the chill out of those first frosty days of autumn in cold weather climates, but it may not really be effective in reducing your overall energy bill. A properly functioning fireplace flue will not only draw out smoke but also about 20 percent of the heated air in the room each hour. Moreover, you are most likely only receiving 15 percent of potential heat produced by each burning log because much of the combustible material in the wood is lost as gas without burning or producing heat. This doesn't mean you should give up your dream of cozy nights by the fire. A few simple modifications can increase the energy efficiency of your fireplace. A heating grate made of hollow tubing that wraps around logs and extends over their tops, can recirculate heat produced by the fireplace into the room. Certain models are equipped with electric blowers that direct hot air into the room instead of up the chimney. Fireplace covers also increase heating efficiency. Steel covers with fire-resistant glass enable you to watch the fire while receiving radiant heat through the glass. But be sure to leave your damper open when the fire is burning or the coals are still glowing. A cover should be placed over the opening of the fireplace at the end of the evening when the fire is nearly extinguished, but hot enough to require an open damper to release smoke. Make certain the cover is tight fitting around the edges so that room heat does not escape. New technology can improve the efficiency of an existing open fireplace. Open fireplaces exhaust large quantities of air up the flue, resulting in drafts that pull heat out of the home. Thus, an open fireplace only has an energy efficiency of about 5 to 6 percent. Homeowners can boost the efficiency of an existing open fireplace by installing a gas-fueled or wood-burning fireplace insert. Inserts fill the existing fireplace opening and connect to the existing flue. These inserts, which use a catalytic combustion system, ensure clean burning and provide a 78-percent efficiency. A fan provides natural convection heating and a thermostat ensures steady, even heat. The type of wood burned also can affect fireplace efficiency and harder woods such as birch, oak and maple burn more slowly and give more evenly distributed heat. Softer woods such as pine burn faster and more unevenly. Beware of green, unseasoned wood which is difficult to burn and produces an great deal of smoke. The damper should be kept closed whenever the fireplace is not in use, unless you are using natural ventilation to cool your home. Otherwise, you may find that it could pull expensive heated or cooled air from your house, which adds to your energy bill. To be sure the damper closes tightly, hold a hand mirror inside the chimney base to check for light leaks. As a safety precaution, it's also a good idea to have your chimney swept each year to remove debris and to check for obstructions. Installing a fireplace also adds to the value of your home. According to statistics compiled by Remodeling Magazine, a fireplace can return as much as 140 percent of the home owner's investment. |
